US Employment Report Is Weak

CURRENCY FUTURES

The U.S. dollar is sharply lower in response to the U.S. employment report.

In recent weeks there has been only a limited flight-to-quality flow of funds into the greenback, which is a sign of longer-term weakness.

The euro area seasonally-adjusted unemployment rate increased to 6.5% in September 2023 from 6.4% in August. The median estimate was 6.4%.

The trade surplus in Germany decreased in September 2023 and was the smallest trade surplus since May.

STOCK INDEX FUTURES

Stock index futures are higher in response to the weaker than expected U.S. employment report. The logic is that a weaker economy takes pressure off the Federal Reserve to increase interest rates, which is supportive to stock index futures.

Nonfarm payrolls in October were up 150,000 when a gain of 179,000 was expected, and private payrolls increased 99,000 when up 143,000 were anticipated.

Manufacturing payrolls declined 35,000, which compares to the predicted 23,000 decline.

Average hourly earnings increased 0.2% when a gain of 0.3% was estimated.

The unemployment rate was 3.9% when 3.8% was forecast.

The average workweek was 34.3 hours when 34.4 hours were expected.

The 8:45 central time October services PMI is predicted to be 50.9.

The 9:00 October Institute for Supply Management services index is expected to be 53.

INTEREST RATE MARKET FUTURES

Futures advanced in response to the employment data.

Federal Reserve speakers today are Thomas Barkin at 9:00, Neel Kashkari at 11:45, Raphael Bostic at 2:30 and Michael Barr at 2:30.

Financial futures markets are now predicting there is a 90% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at its December 13 policy meeting, and there is a 10% probability of a 25 basis point increase.

In early October the probability of a 25 basis point increase in the fed funds rate at the December policy meeting was as high as 46%.

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